(Reuters) – Russia’s size and close integration into the global aviation industry since the end of the Cold War means sanctions related to its invasion of Ukraine are having outsized consequences relative to earlier freezes on Iran and North Korea.

Manufacturers, lessors, insurers and maintenance providers to Russian carriers like Aeroflot (AFLT.MM), S7 Airlines and AirBridgeCargo are among those outside Russia that are hit directly by sanctions.

Foreign airlines, meanwhile, are reeling from higher oil prices and longer routes needed to bypass airspace over Russia that are expected to drive up ticket prices and air freight rates.

AIRCRAFT LEASING, INSURANCE IMPACT

Russian airlines have been highly reliant on the global aircraft leasing industry to modernise their fleets with the latest Airbus (AIR.PA) and Boeing (BA.N) planes.

Russian carriers have 980 passenger jets in service, of which 777 are leased, according to analytics firm Cirium.

Of these, 515 jets with an estimated market value of about $10 billion are rented from foreign firms such as AerCap (AER.N) and Air Lease (AL.N). read more

The European Union has given leasing companies until March 28 to wind up current rental contracts in Russia.

But getting the planes back could be challenging due to airspace bans, potential SWIFT payment transfer issues and industry concerns the Russian government could nationalise the fleet to maintain domestic capacity.

Russia’s state aviation authority recommended that airlines with foreign-leased planes stop flying them abroad.

Even if the planes are returned quickly, the huge number needing to be placed elsewhere could depress rental prices globally, analysts say.

Russian airlines have also been cut off from the insurance and reinsurance markets in the European Union and Britain.

An insurance industry source said it was unclear if lessors unable to repossess planes would be covered for losses under their own policies, which typically contain clauses cancelling coverage in the event of sanctions.

Legal action may be needed to settle the issue, said the source, who was not authorised to speak publicly.

SOURCE REUTERS, Read more…